Volatility will continue in global markets, early signs point to risk aversion
Are inflation expectations waning?
Investors have expressed concern that aggressive interest rate hikes by major central banks to tackle inflation could lead to a recession, which will reduce demand for commodities and other commodities.
This suggests that bad news is now rapidly turning into good news for the financial markets.
In fact, global equity markets rose on Friday and posted strong gains for the week as the recent fall in commodity prices outweighed the chances of inflation and rate hikes.
The S&P 500, Dow and Nasdaq all saw weekly gains of more than 6 percent, with the S&P 500 up 6.4 percent, the Dow 5.4 percent and the Nasdaq up 7.5 percent.
The benchmark S&P 500 confirmed a bear market in the past week. US Treasury yields gradually climbed from two-week lows.
Both the pan-European STOXX 600 index and the worldwide MSCI stock index saw gains of 2.62 and 2.63 per cent, respectively.
“This week the (stock) market came oversold, so it was time to bounce back,” Quincy Crosby, chief equity strategist at LPL Financial in Charlotte, North Carolina, told Reuters.
“We’ve seen oil prices come down along with other commodity prices,” he said, adding that the market’s move “reflects expectations of at least a notable recession, if not an out-and-out recession.”
But the risks of a recession or a sharp global economic downturn have to come into play with central banks fighting inflation first before a slump in demand.
On Friday, Indian equity benchmarks climbed for the second consecutive session, marking a successful week. Asian markets, which ended the week on a higher note, posted gains on Wall Street overnight.
But the rupee hit a new all-time low of 78.33 against the dollar, underscoring deeper concerns, recording its first weekly loss of the month, despite the greenback’s fall on Friday.
After tight monetary policy, high oil prices and a volatile rupee by the Reserve Bank of India and the US Fed, foreign investors continued to run away from Indian equity markets with a total withdrawal of Rs 46,000 crore so far this month.
So the risks are many.
For the coming week, analysts predicted that global trends, crude oil price and foreign institutional investments would impact Indian stocks. He also warned that the benchmark indices would be volatile due to the upcoming monthly derivatives expiration.
Indian markets managed to recover from lower levels after two weeks of sharp cuts, driven by a correction in global markets and a cut in commodity prices. It looks like this recovery may see further extension, and we can expect a decent rally in the coming days. Day in equity markets,” Santosh Meena, Head of Research, Swastika Investmart told PTI.
“Apart from the end of F&O, monthly auto sales numbers and monsoon growth will be important triggers,” Meena said.
He said crude oil, rupee movement and FII (foreign institutional investor) behavior would be other important factors.
After two weeks of losses, the 30-share BSE Sensex rose 1,367 points or 2.66 per cent last week. Overall, the Nifty closed with a gain of 405.75 points or 2.64 per cent.
With nine of the top 10 firms rated by market capitalization, Tata Consultancy Services was the top gainer last week, clocking a rise of Rs 2.51 lakh crore.
While Reliance Industries was the only member of the group to lose ground, the other winners were HDFC Bank, Infosys, Hindustan Unilever Ltd and ICICI Bank.
But investors will keep an eye on rupee volatility, expiry of contracts and progress of monsoon.
Ajit Mishra, Research VP, Religare Broking, told PTI, “We expect volatility to remain high this week due to the scheduled expiry of derivative contracts for the month of June.
“Also, the performance of global indices, especially US, crude oil movement and progress of monsoon etc. will remain on the radar. This week also marks the beginning of a new month, so auto numbers will also start coming from 1st July. . ,” Mr Mishra said.
Yesha Shah, Head of Equity Research, Samco Securities, said, “There are several events coming up this week that could affect the mood of the market. Investors will analyze the US quarterly GDP growth data.”
According to Mr Shah, stock-specific swings on D-Street in India will continue to be driven by car sales data as investors try to gauge the direction of the market. The closing of the monthly F&O in the second half of the week may also contribute to the volatility in the index.
Last week, several industrial metals had registered a decline.
Standard copper was down 0.5 per cent at $8,367 a tonne on the London Metal Exchange, after reaching $8,122.50, the lowest level since February 2021 and down 25 per cent from its March high.
Despite climbing on Friday, oil prices registered a second weekly decline.
International benchmark Brent crude rose $3.07, or 2.8 percent, while US West Texas Intermediate crude was up $3.35, or 3.2 percent, at $107.62 a barrel.